December 8, 2023

Mortgages: Saving Money on Title Insurance

Ostensibly, that premium (and sometimes assorted fees) reflects the cost of guaranteeing the borrower clear ownership of a property. Title agents search public records for tax liens and any other outstanding claims that need to be resolved, and then insure the borrower and the lender against claims that might have gone undetected.

Title insurance rates vary considerably by state. In New York, insurers belong to a rating bureau that submits a rate schedule for state approval.  Depending on the value of the property, costs can easily run into the thousands. On a $500,000 home with a $400,000 mortgage, for example, the premium in the New York City area would be $2,666, according to Rafael Castellanos, the managing partner of Expert Title Insurance Agency in Manhattan. “It’s a bargain in the end given the protection title insurance provides,” he said.

Yet for years, a debate has raged as to whether premiums are too high, competition too constrained, and the insurers too closely intertwined with the mortgage and real estate professionals who send business their way. Some states have looked into the arrangements between title insurers and referral sources, including New York. In 2006, two title insurers that account for half the New York market — the Fidelity National Title Group and First American — agreed to 15 percent rate reductions to settle state allegations of illegal referral payments and rebates.

Another investigation may be afoot. Mr. Castellanos and two other industry executives said the state Department of Financial Services sent subpoenas to a number of title companies. A department spokesman would not comment on the claim.

Borrowers typically rely on their mortgage broker or real estate agent to select a title agent for them, but Mr. Castellanos says they are better off making the selection themselves. He advises borrowers to ask a real estate lawyer to recommend an independent title company, and to avoid title agencies that have a business affiliation with the real estate agency or lender recommending them.

One insurer is offering a more transparent option. Entitle Direct in Stamford, Conn., offers premium rates up to 35 percent below the going rates in the 40 states in which it operates. (These rates are not available in New Jersey.) According to the company’s founder, Timothy M. Dwyer, Entitle is able to offer reduced rates by marketing directly to consumers and eliminating the use of title agents, who typically receive a hefty split of the insurance premium for their services. “The national average commission is 80 percent of the premium,” he said. “We do not have that expense. We contract out to a third-party partner that provides us with the title search product.”

Founded in 2009, the company has grown slowly. Entitle’s sales account for only 0.1 percent of the total national premium, said Birny Birnbaum, the executive director of the Center for Economic Justice, a consumer advocacy group. He attributed the slow growth to “the limited price competition in title insurance markets and the strength of the institutional arrangements between title insurers and those able to steer title business — lenders, developers, Realtors, builders.”

In Connecticut, where only lawyers can act as title insurance agents, “very few attorneys will close with Entitle, or sell very hard against it, because they’re not making the premium,” said Scott Penner, a lawyer in Milford. “Or they will increase their attorney fee, and that offsets the savings.”

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Bucks: A Background Check for That House You’re Considering

Buyers typically rely on home inspectors to warn them about possible problems with a house they want to buy. A new service called BuildFax is offering additional documentation about a building’s history that may prove helpful to prospective purchasers, and even sellers.

BuildFax describes its service as a “background check” on a home that can complement an inspector’s report.  The service has primarily been marketed to insurers, appraisers and building and real-estate professionals but is also available to consumers.

The company charges $39.99 per analysis, but BuildFax is offering free reports to consumers through July 31. The free version is the same report you would receive if you paid, and it doesn’t obligate you to buy anything else, says Holly Tachovsky, BuildFax’s co-founder and president. “It’s must-have data for consumers,” says Ms. Tachovsky, “so they can make an informed decision about the house as it really is.”

The service, based in Austin, Tex., has compiled a database of permit information from building departments in more than 4,000 cities and counties. It mines that data by address to create a summary report showing major renovations or repairs done on a home, like roof replacements, additions or systems work like plumbing or air-conditioning. Consumers receive a report that shows the dates and scope of the project, as well as the contractors who worked on the property.

The reports can help sellers prepare accurate disclosures and help home buyers evaluate whether the seller’s disclosure is complete. Discrepancies between what the building permit says and what the seller says may raise red flags, or at least provide points for negotiation on price.

Ms. Tachovsky recalls that when she ran a BuildFax report for her sister-in-law, her relative learned that the house’s heating system was probably much older than she had been led to believe when she bought the property. Had she had that information when negotiating the purchase, she might have asked for a price reduction to cover the cost of a new system.

BuildFax says it offers data on properties in 60 percent of the country. Rules about what sort of work necessitates a building permit vary from location to location. In general, however,  major renovations — like, a significant remodel or the addition of a second story on a home — always require a permit.

Given that the residential real-estate market today is generally a buyer’s market, the service might help a buyer narrow down choices. “If one house has a fully permitted remodel, you know it wasn’t wired by someone’s cousin,” Ms. Tachovsky says.

The reports can also help identify new systems that may make the home eligible for insurance discounts. Some insurers, for instance, will offer discounts on homeowners premiums if a roof is less than five years old, she said.

Would you pay nearly $40 for a report on a home’s history?

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